Thursday, August 26, 2010

Japan as Number three

The year was 1979, the year Sony introduced the Walkman. China established the first experimental economic zone in Shenzhen, opposite Hong Kong. And Harvard Professor Ezra Vogel published his surprise best-selling book: Japan As Number One.

It is fair to say that of the latter two events, the publishing of Japan as Number One gained considerably more attention in Japan. Everyone likes to be flattered, and no one knew at the time what would become of Chinese leader Deng Xiaoping’s market opening initiative.

The book by an American economist, or the title of the book at least, put the final stamp of approval on Japan Inc. It seemed to validate the Japanese economic juggernaut, and underlined growing anxiety in America that the Japanese were poised to buy up the whole economy.

Fast forward to 2010 and, in retrospect, it is clear that the opening of the special economic zone in Shenzhen and more generally the landmark decision of the communist party (formally approved in December 1978) to eschew class struggle and open the economy to market forces was the truly seminal event.

That was underscored this summer when China displaced Japan as the world’s second largest economy, hurried along, no doubt, by the especially anemic .1 percent growth recorded in the second quarter. During those 30-plus years China’s Gross Domestic Product grew 100-fold to reach $1,335 trillion with Japan’s just behind it at $1,286 trillion.

The reaction in Japan has been fairly muted. “Everyone was resigned to our fate. It just came a little earlier than people expected,” says Takatoshi Ito, professor at the graduate school of economics at the University of Tokyo. “People just shrug and say, shou ga nai,” a popular Japanese phrase that means “it can’t be helped,”

Of course, the Japan of 2010 is not the same Japan that Professor Vogel wrote about. It is a country currently entering its third “lost” decade of low growth. At the moment, the Japanese economy is barely in positive growth territory with an annualized pace of .4 percent (below a modest projection of 2 percent).

Why is reaction in Japan so low-key? According to Professor Ito the Japanese have felt lost because of the endemic low growth of the past and don’t want to take risks. That observation is borne out by statistics that enumerate the career choices graduates make, the age of marriage and even curiosity about the world outside Japan.

The irony is that more and more college graduates are seeking security in life-time employment in large corporations exactly at a time when Japanese corporations are turning away from lifetime employment, have begun cutting back on hiring new recruits and have started replacing them with temporary and part-time workers.

Fewer Japanese young people seem interested in joining or starting new business ventures. The Japan Productivity Center surveyed student attitudes in 2000 and found that a healthy 31 percent would like to start up a business and become independent. A similar survey in 2009 found that this number had been halved to 14 percent.

Fewer and fewer Japanese young adults are going abroad either to study or for pleasure. Last year China sent about 100,000 students to study in the U.S., South Korea sent 70,000 and Japan only about 30,000. It prompted the Asahi newspaper to scold these seemly inward-looking students. “The World is Waiting for You”.

Some forward looking corporations in Japan are trying to buck this inward trend. Rakuten, an Internet shopping mall, recently announced that it would require all of its employees to learn to speak English by 2012. Many of its internal conferences are done using English now whether or not any foreign employees are present.

Of course, China has moved ahead of Japan in just one criterion, albeit a sexy one. This is not surprising considering China is ten times bigger than Japan in terms of population. By many other measurements, such as per capita income ($39,700 versus $3,600), China lags Japan by a wide margin. After all, any figure divided by 1.3 billion people is likely to be small.

“By most indictors, China is where Japan was about 40 years ago,” says Chi Hung Kwan, senior fellow, Nomura Institute of capital markets research. This includes such criterion as life-expectancy, electricity usage and many more, he said.

And China’s growing prosperity is hardly bad news for Japan, as it represents an increasing market for Japanese products. In many ways the two economies complement each other. Where Japan is strong; China is relatively weak and vice versus. “It’s a win-win situation,” said Kwan.

In more intangible ways China is approximately where Japan was 40 years ago. Beijing just hosted the Olympic Games, and Shanghai has a major world’s fair going this summer. Japan held a world’s fair in Osaka in 1970 and hosted the Olympics a few years before. Last year local indifference helped to scuttle the Tokyo governor’s ambition to hold the Games there once more.

In 2000 Vogel wrote a short sequel to his famous book called Is Japan Still Number One? He was still optimistic about Japan’s prospects. Among other things Vogel predicted that the “Japanese will surely structure the economy to meet global demands.” It is questionable whether he could support that view ten years on.

During prime minister Junichiro Koizumi’s administration in the early part of the decade, the impulse to reform and open the Japanese economy did seem to be moving forward. But it petered out after Koizumi stepped down and was replaced by a revolving door of premiers. The election of the Democratic Party last summer did not seem to change things either.

Vogel never meant for the title of his book to be taken literally. No economy of 127 million people can overtake one with 300 million people no matter how industrious or well managed it might be. That is not the case with China however.

Estimates as to when China will supplant the United States as the world’s largest economy range from 2026 to 2039 depending on such factors as annual growth rates and how fast the currency appreciates. But it is only a matter of time.

Sunday, August 08, 2010

Atomic Minefield

President Barack Obama will have to deftly navigate an atomic minefield, if he decides to visit Hiroshima, the city destroyed by the first atomic bomb sixty-five years ago on August 6, 1945, during his next visit to Japan later this year.The president is bound to step on one or two land mines whether or not he goes to Hiroshima or not. Even if he should do nothing but stand silently, letting himself be photographed looking at Atom Dome, the iconic emblem of the bombing, he might be accused of making a “silent apology”.

This month the Obama administration dispatched the U.S. Ambassador to Japan, John Roos, to the annual memorial held every August 6 in Hiroshima. It was the first time that an American ambassador had attended the memorial service, a point widely noted and appreciated in Japan. Ambassador Roos’s visit was short. He placed a wreath at the Cenotaph but did not speak. He did not visit the Dome or the Hiroshima Memorial Museum, with its grim pictures of the victims of the bombing, although he visited those sites during a trip he made shortly after arriving in Tokyo.

The Roos initiative can be seen as a kind of trial balloon for a possible presidential visit in November, when Obama will be in Japan attending the annual gabfest known as APEC (Asia-Pacific Economic Cooperation forum) which is being held in Yokohama this year. Obama has been invited – indeed almost implored – to come to Hiroshima by the Mayor of Hiroshima Tadatohi Akiba. During his last visit to Japan in January Obama replied cautiously that he “would like to visit Hiroshima,” which would seem to leave him an out if he wants one.

Nevertheless, a head of steam is building in Japan that Obama should visit the city and perhaps Nagasaki also. A decision not to go would be a major snub. Yet, Obama would open himself up to considerable criticism. It is a political trope among conservatives that he goes around apologizing to everyone. The domestic reaction to the Roos visit seems to have been fairly muted; the conservative and anti-Obama critics may have other priorities for the moment. But then Roos is merely an ambassador. They might react differently to a presidential visit.

The August 6 anniversary usually passes mostly unnoticed in the US, but it is a big deal in Japan. Not only is there a solemn ceremony in Hiroshima, but there are displays of the bombing and its effects all over the country. Newspapers play up the story with articles and interviews with the aging survivors. This year the observations seemed to be an even bigger deal, with Hiroshima residents and other committed to nuclear disarmament perhaps invigorated by the presence, not only of the US ambassador but also in another first the Secretary General of the United Nations, Ban Ki-moon.

Moreover, expectations have been raised - perhaps unrealistically high - by Obama’s own words; they see him as soul mate. His phrase calling for a “world without nuclear arms” made during a speech in Prague early in his presidency and even his winning the Nobel Prize for Peace are repeated endlessly.

The Mayor felt emboldened to direct some pointed questions at his own government this year, calling for Tokyo to renounced the “nuclear umbrella” that the U.S. provides Japan and demanding that the “Three Nos” -not to use, possess or allow into the country any nuclear weapons, be made a law not just a statement of policy. Prime Minister Naoto Kan deftly sidestepped the demands, reaffirming Tokyo’s commitment to the nuclear umbrella and to the Three Nos, but without promising to turn them into law.

The Japanese press is poised to pounce with questions along the lines of “do you agree with President Truman’s decision to use the atomic bomb?” Indeed, they already have during Obama’s earlier visit to Tokyo. Such inevitable questions will tax his speech writers’ abilities to produce creative obfuscation to the limit.Yet any deviation from the accepted view in America that the twin atomic bombings were necessary to end the war and save even more lives, both of Japanese and invading GIs will bring forth a firestorm of criticism at home If he defends the decision to drop the bomb he’ll injure relations with Japan; if he doesn’t, he opens himself to criticism from the right at home.

The Japanese government has never demanded an apology for the atomic bomb attacks and is not doing so now, even though it has made several formal apologies to China and Korea about its actions during World War II. Even at this writing Kan’s cabinet is preparing an apology to South Korea to mark the 100th anniversary of Japan’s annexation of the country in 1910. Japan has never apologized for its attack on Pearl Harbor nor has a leader visited the USS Arizona memorial site. However, the Emperor Akihito has paid his nation’s respects by laying a wreath at the Punch Bowl National Cemetery in Hawaii, and his father, the wartime Emperor Hirohito, did the same at Arlington during a visit to the US in the 1970s.

Though some Japanese (even some Americans) denounce the bombings as a war crime, most Japanese are not unsympathetic to the idea that the bombings brought the war to a quick close. They just wish the Americans were more sensitive to the lives (mostly civilian) lost and didn’t constantly prattle on about the GI lives that were saved. If Obama can keep things on that level – a universal respect for the dead – then a trip to Hiroshima might be a success. But otherwise, he may have cause to wish that the APEC was holding its meeting this year in Bali.

Sunday, August 01, 2010

To Boldly Go . . .

The Japanese are used to having their astronauts piggy back on other nation’s missions into outer space. Several Japanese have flown on American space shuttle missions. Most recently, for example, Naoko Yamazaki flew aboard the Discovery space shuttle.

Their exploits above the Earth are usually good for a day or so of newspaper stories and perhaps a goodwill visit to some school children, but for the most part the Japanese - and the rest of the world - have paid little attention to their country’s space exploration programs or even realized that they had one.

That all came to a flaming end when the space vehicle Hayabusa streaked across the sky in Western Australia, safely jettisoning its payload for scientists to examine, after a seven-year space voyage to the asteroid Itokawa, 300 million kilometers from earth – and back.

Japanese, if not the rest of the world, suddenly woke up to the fact that their country had become just the second country in world history, and the first since the Apollo missions to the Moon in the 1970s, to send a space vehicle to another world and then return it to Earth. Japan is on the cutting edge of space exploration.

If that were not enough, only a few days earlier the Japanese space agency, known as the Japan Aeronautical Exploration Agency (JAXA), launched the Akatsuki, on a voyage to Venus, where it is expected to go into orbit around the planet and obtain information on climate patterns. It carries an array of cameras and other instruments to capture the movement of the atmosphere.

The same rocket carried aloft yet another space vehicle, the Ikaros, which is billed as the world’s first space “yacht.” By that the agency means it will deploy a “sail” made up of an extraordinarily thin polymer membrane designed to catch the solar wind and propel the probe onward.

These remarkable achievements passed almost unnoticed outside of Japan, which is both a pity and entirely predictable. The wider world has more or less settled on the theme of a Japan in decline, and stories of such successes do not fit the theme. Indeed, one reason for the persistence of the Japan-in-decline theme is an almost deliberate obtuseness over its successes.

Many of Japan’s industrial giants contributed parts to the flight. They included NEC which provided the propulsion system, Fujitsu, which provided systems for orbit control; IHI which helped design the payload capsule; Mitsubishi Electronics for the ground antennas used to control the flight, and Mitsubishi Heavy Industries; the chemical engines.

These companies could hardly have asked for better advertisement for their cutting edge technologies than that they propelled the Hayabusa for seven years of space travel and brought it back to earth safely.

The asteroid Itokawa, which is only about 500 meters long and 200 wide, or about the size of Hibiya Park in downtown Tokyo, was only discovered in 1998, or about five years before the space probe was launched in May 2003. It was named, at Tokyo’s request, after Hideo Itokawa, generally considered the father of Japanese rocket development.

The mission can be considered a success in that the probe landed on Itokawa and returned to earth with its payload, but it is as yet uncertain whether the probe brought back any “asteroid rocks” to examine. The device that was to shoot metal balls into the asteroid surface to kick up debris to be collected malfunctioned.

The space agency hopes that just by settling on the surface of the planetoid may have stirred up enough collectable dust to learn something. The capsule was recovered in Australia and shipped directly to the JAXA’s laboratory in Kanagawa prefecture.

As of this writing, the technicians have not yet tried to open the capsule and examine what is inside. Preliminary X-rays of the insides were not optimistic that it had collected enough asteroid material for serious analysis, but that remains to be seen.

Scientists were hoping to learn from the dust something about the formation of the solar system estimated to be 4.6 billion years ago. Unlike other planets and the Earth, the asteroid Itokawa is believed to have been unchanged since the beginning of the solar system.

The mission has already profoundly changed the way Japanese, and the Japanese government, look at space exploration. Even Renho, the new cabinet minister charged with identifying wasteful government spending, and a bloodhound on science projects, was impressed.

“It is a feat that all Japanese should be proud of,” she said. “This is a major message to the world.” Editorials in leading Japanese newspapers piled on the praise: “We believe Hayabusa has clearly shown us what Japan can – and should - aim for,” said the Asahi Shimbun. One could speculate that the space agency budget, only about a 10th of the U.S. budget for space exploration, is pretty safe.

Among other things the Hayabusa mission demonstrated conclusively that Japan has the technology for long-distant missions (At 2,592 days it was the longest space voyage on record, eclipsing the 2,542 days of the American “Stardust” mission of 1999-2006), which collected cosmic dust but did not land on another world.

Additionally, the long voyage was accomplished, despite overcoming numerous glitches along the way, using a small-sized high performance ion engine, developed by the NEC Corp., which creates thrust by expelling xenon ions. Although the thrust is weak, the probe gradually gathers speed over time.

JAXA technicians had to overcome numerous setbacks during the seven-year voyage. Three of the four ion thrusters stopped working during the flight, a fuel leak rendered the chemical engine inoperable, two of the three attitude control antennas broke down and communication was lost for 50 days after the second landing on the minor planet.